LAKE MALAWI ANGLICAN UNIVERSITY (LAMAU)

FACULTY OF BACHELOR OF COMMERCE IN FINANCE

PROGRAMME : BACHELOR OF COMMERCE IN FINANCE

YEAR :1

SEMESTER :1

LECTURER : MR DAVID PANKOMERA

STUDENT NAME : TAIMU SAMUEL

STUDENT NUMBER : BCF/25-1/003

COURSE TITLE : INTRODUTION OF FINANCIAL ACCOUNTING

COURSE CODE : BCOM 1105

ASSIGNMENT No. :1

DATE SUBMITED : 27 FERBUARY, 2025

DUE DATE : 10 MARCH, 2025

TASK : MEMORUNDUM
QUESTION TWO

To: Zithere Pano

From: Taimu Samuel, Accountant

Date: 23 February 2025

Subject: Explanation of accounting concepts

Dear Mr Zithere Pano

As your request, I am pleased to provide an explanation of fundamental accounting concepts

that will enhance your understanding of your business’s financial operations. This
memorandum will address the following topics: the double entry principles of accounting, rules
for posting transactions to accounts, why trial balance has balanced all the time, why the capital
regarded as liabilities in a business.

a) The double entry principle of accounting

Double entry means that every financial transaction is recorded in two separate accounts. In
debit account put this side only if the assets expenses increase and liabilities plus decrease.in
credit account put only if the liabilities plus income increase and decrease the assets and
expenses. Then every financial transaction affects at least two accounts, and these effects must
be recorded in a way that maintains the accounting equation: (Weygandt, 2020)

(Asset = Liabilities + Equity) remains balanced.

Any transaction of the business will affect either, Assets, or liabilities or income or expenses

b) The rules followed when posting transactions to accounts

Increasing the assets, decreasing the liabilities and equity record in Debits side.
Decrease the assets, increase the liabilities and equity record in Credit side.

Every transaction affects two accounts, and this effect will have to be entered in both of them,

1 For Personal Accounts:

The account of the person receiving the benefit, (receiver) of the transaction (from the business)
is debited and the account of the person giving the benefit (giver) of the transaction (to the
business) is credited.
2 For Real Accounts:

When an asset is coming into the business, the account of, that asset is debited. When an asset
is going out of the business, the account of that asset is credited.

3 For Nominal Accounts (expenses accounts):

When an expense is incurred or loss suffered, the account representing the expense, or the loss
is debited because the business receives the benefit thereof. When any income is earned or gain
made, the account representing the income, or the gain is credited. This is because the business
gives some benefit.

c) Why the trial balance must be balanced all the time

The trial balance must balance all the time because is based on accounting equation, which is

(Assets = Liabilities +Equity)

In trial balance every transaction is recorded with an equal debit and credit therefore total debit
is equal the total in credits this makes the trial balance business to balance in all time
(Foundation, 2020)

d) Why the capital is Regard as a liability in business

Capital is regarded as liabilities because it represents as amount of money invested by the

owners, which obligate the return. Simply means capital owns the owners, when take money
and put into the business, the business owns you.

I hope this explanation will help you to understand the accounting concepts. If you have
question, please ask.

Best regards,

Taimu Samuel

(Accountant)
QUESTION THREE

Presentation Notes for Business Owners: Key Accounting Concepts

Introduction: As a business owner, understanding basic accounting concepts is critical for

managing your business’s financial health. Today, we will cover four important accounting
concepts: assets, liabilities, expenses, and income. We will also explain the purpose of two
essential financial statements—the balance sheet and income statement, (A, 2022).

1. Assets: Definition and Categories

What Are Assets: Assets are resources that your business owns and controls, and which are
expected to provide future economic benefits. (jones, 2021)

Categories of Assets:

 Current Assets: These are assets that your business expects to convert into cash or use
up within one year. Examples include:
 Cash and Cash Equivalents: Money in hand or in bank accounts.
 Accounts Receivable: Money that customers owe to your business.
 Inventory: Goods that are available for sale or use in production.
 Prepaid Expenses: Payments made in advance for services or goods to be
received in the future.
 Non-Current Assets (Fixed Assets): These assets are expected to provide benefits
beyond one year and are usually more permanent. Examples include:
 Property, Plant, and Equipment: Land, buildings, machinery, and other long-
term physical assets.
 Intangible Assets: Non-physical assets like patents, trademarks, or copyrights.

1. Investments: Long-term financial investments in other companies or assets.

2. Liabilities: Definition and Categories

What Are Liabilities

Liabilities represent the financial obligations or debts that your business owes to others. These
could include loans, and accounts payable, (jones, 2021)

Categories of Liabilities:

 Current Liabilities: These are debts that your business must settle within one year.
Examples include:
o Accounts Payable: Money your business owes to suppliers or creditors.
o Short-Term Loans: Loans or debts that are due within the next 12 months.
o Accrued Expenses: Expenses that have been incurred but not yet paid, such as
wages, taxes, and utilities.
 Non-Current Liabilities (Long-Term Liabilities): These are obligations that are due
after more than one year. Examples include:
o Long-Term Loans: Loans or debt that is due beyond one year, like a mortgage
on your property.
o Bonds Payable: Bonds issued by the company to raise funds, typically paid back
in more than one year.
3. Expenses and Income

What Are Expenses

Expenses are the costs incurred by your business to generate revenue. They are necessary for
day-to-day operations and affect the overall profitability of your business.

Categories of Expenses:

 Operating Expenses: These are regular costs incurred to run the business. Examples
include:
 Rent: Cost of leasing office or retail space.
 Salaries and Wages: Payments to employees for their work.
 Utilities: Bills for services like electricity, water, and internet.
 Depreciation: The loss of value in assets like equipment and machinery over
time.
 Non-Operating Expenses: These are expenses that aren’t directly related to business
operations. Examples include:
 Interest Expenses: Interest paid on loans or credit lines.
 Losses on Sales of Assets: Losses incurred when selling assets for less than their
book value.

What Is Income

Income refers to the money your business earns, primarily from selling goods or services. It is
the opposite of expenses and represents the increase in your business’s financial resources due
to its operations.

Categories of Income:

 Operating Income (Revenue): This is money earned from your business's primary
activities, such as sales of products or services.
 Non-Operating Income: This includes income from secondary activities, like interest
income or gains from the sale of assets
4. Objectives of the Balance Sheet

The Balance Sheet is a snapshot of your business's financial position at a specific point in time.
It shows what your business owns (assets), owes (liabilities), and the owner's equity, (Lee,
2020)

Objectives of the Balance Sheet:

 To show the financial position: It helps to determine the financial health of the business
by showing the relationship between assets, liabilities, and equity.
 To assess liquidity: It shows how easily the business can pay its short-term debts by
comparing `current assets with current liabilities.
 To analyse solvency: It helps in determining whether the business is in a position to
meet its long-term obligations.
 To support decision-making: By reviewing the balance sheet, business owners and
investors can make informed decisions about financial planning and future investments.

The balance sheet follows the fundamental accounting equation: Assets = Liabilities + Owner’s
Equity.

5. Objectives of the Income Statement

The Income Statement (also known as the Profit and Loss Statement) provides a summary of
your business’s financial performance over a period, typically monthly, quarterly, or annually.
It shows your revenues and expenses and calculates your business’s profit or loss, (A, 2022).

Objectives of the Income Statement:

 To measure profitability: The income statement shows whether your business is making
money or losing money.
 To track revenue and expenses: It helps you monitor how much income your business
generates and how much it spends.
 To provide insights for decision-making: Business owners can use the income
statement to identify areas for cost reduction and areas where the business can improve
to increase profitability.
 The basic formula for the income statement is: Net Income = Revenue – Expenses
 REFERENCES

A, T. .. (2022). Basic Concepts and Financial Management, Accounting for enterpreneurs.

London: Entrepreneur Press.

Foundation, I. (2020). Trial balance. Retrieved.

jones, &. s. (2021). financial accounting: Abusiness Owner's. New York: business press.

Lee, T. (2020). The Essentials of financial Reporting for small Business. London: Entrepreneur
press.

Weygandt, J. k. (2020). accounting principles. Wiley.